How dignified... Childish for a President of a nation to show such immature leadership.

Krugman won a Nobel Prize not because he is stupid.

Really, how immature... It plays into Krugman's criticism.

Either submit a thoughtful response written in a reasoned manner or say nothing at all Toomas. Linking to a previous talk... If the comments deserve a response, then craft one in a mature way.

I do not agree with Krugman, but at the same time, Toomas' response is like a high school student.

If Ilves wants a proper response, then get a few economists to pick apart Krugman's analysis and beat him with his own theory. Not a tweet.
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~Sigh
[07.06.2012, 12:27]

Agreed. I think Krugman has a good point to begin with. Many times when we see an article like "production up x%" or "sales up x%", I'll compare it to the "good years" and that puts things in perspective. In most cases, the situation now has reach about 2004-2005 on the scale, and has a way to go to reach 2007-2008 numbers.

~ameeriklane
[07.06.2012, 15:22]

Krugman's observation is simple mathematics and there is nothing to complain about. But the remaining question is, what takes Estonia so long on the road to recovery.

According to Krugman's general views, that would be the austerity measures, but that is partially wrong, as mentioned below in this coment section.

Perhaps, a stimulus wouldn't change much either, as the U.S. that runs a massive stimulus program now for quite a while, is still flat at best.

So, this time, I am asking a question to the audience (meanwhile I am usually asked, what's my point, or am I just a "nutter"), what Estonia has not done yet, that would allow for a better growth?

~knut albers
[07.06.2012, 15:53]

Why is there unemployment anywhere? Because spending is too low. Why is spending too low? Because people are too poor, after collapse of the housing bubble wiped out their housing wealth. How to we remedy this situation? By realizing that public debt is wealth to the private sector. Every debt is accompanied with credit and we use this credit, quite literally, as our money.

So what can Estonia do? An monetary reform that allows it's government to increase it's citizens wealth to the point where consumption utilizes fully it's productive resources.

Call it a sovereign currency.

~H
[08.06.2012, 02:19]

You do not understand cause of effects.

There is enough meney in the market available, but it is not invested because of the massive public and private debt that accumulated in most parts of Europe and the States.

Debt is the problem, not the solution.

~knut albers
[08.06.2012, 11:34]

Private debt is debt, but public debt is wealth to the private sector. Monetarily sovereign government go into debt by issuing money. That is why solvency is never a problem for a countries like United States, Japan or United Kingdom. Countries that use euro face financial constraint in their ability to spend. That's why I called for currency reform.

Countries with fixed exchange rates face solvency issues also, and so are not monetarily sovereign, but can cure that simply by letting their currencies float.

With all respect for Estonia: the Estonian economy is not suitable to be used as a model, neither for austerity defenders nor for the Keynesians. It's economy is simply to small and open and by that dependend on bigger economies. If austerity works or not can only be judged on a much bigger level.
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~To small
[07.06.2012, 12:35]

Funny though, Krugman was a bold advocate for Keynesian resurgence back in 2008/2009.

Remember Noah Smith referred to that as the "Krugman insurgency?"

But if you do not know this fact (as it seems to be the case with Ilves), then you are unable to combat Krugman in a reasonable manner, by simply refering to his fiscal stimulus and expansionary monetary policy proposals that particulary failed in Estonia (through EU aid).

At least it doesn't help Estonia on the road to recovery.

That is why I always said, it is better for Estonia to not have this aid, and instead to completely stand on it's own feet that would encourage this country to be more eifficient, competetive and inventive in a prosperity sense, instead of being invenstive all the time on how to grab a piece from the cake, to consume it, and then to demand more of it.

This is like providing a junkie its daily dose, but free shot of heroine, which doesn't really help him out of his addiction.

~knut albers
[07.06.2012, 15:21]

Pretty much as Jim Cramer, btw.

Remember his outrage, where he suggested Benanke to "open the door FED window?"

As a refresher, here it is:

http://www.youtube.com/watch?v=TaKnDMv6ceg

Well, that actually was done later on, and the U.S. economy is still flat and, oh no wonder, even the raise of the debt ceiling for quite a few times did not change anything on that.

Estonia receives about 7% of GDP in funds from the EU, I don't see much austerity, that's more like Keynesian stimulus.

http://www.imf.org/external/pubs/ft/scr/2011/cr11333.pdf (p. 31)

Ilves also displays a huge inferiority complex in his comments. Krugman doesn't care about Eastern Europe, it's just about economics, he has criticised other countries in the same way.
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~Mark
[07.06.2012, 13:42]

7.7 minus 2.5 (Transfers to the EU budget)=5.2% Still very high. In particular considering that in the UK:
"The Bank of England's purchase of £200bn of assets has been "economically significant", boosting GDP by as much as 2%, according to the Bank's Quarterly Bulletin."

~D
[08.06.2012, 11:51]

5.2% is quite average for an emerging economy, as well 2% is quite average for a G8 country.

The thing is, for an emerging market, the current growth rate should be higher in order to regain lost time that was caused due to the massive downturn of 14% for 2009 alone and is still below prior bubble times, as the growth in 2004 was 7.22%, which came down from 9.56% in 2001 that was a result of the dot-com bubble. As a reminder: the housing private debt bubble in Estonia peaked in 2006 at 10.56% that is exactly 1% percent more compared to the previous bubble only.

So, where are the other roughly 2.5% growth rate we actually should, but currently do not have?

~knut albers
[08.06.2012, 12:17]

2% higher grwoth rate we actually should have.

In other words, meanwhile things are not as bad as Krugman's figures may suggest, Estonia still lacks 28% of its growth potential, compared to the low of the previous dot-com bubble.

Here, one particular reason may well be that the private debt ratio is still at 90% of Estonia's GDP, but that would be less of a problem, when we would determine the errors that are causing the lost growth opportunity.

Krugman is right.
Everybody who does business in Estonia and in the region knows what is the real situation.
The ´success´ of Estonia is just propaganda made by government.
Furthermore, after Euro entry, the purchasing power went totally down.....

You guys are all discussing the pros and cons of Krugman's views, which is the RIGHT thing to do, unlike Ilves' comments which seemed to basically be a diatribe against the man himself, which comes across as childish and unstatesmanlike. I have difficulty in finding an actual argument against what Krugman said in Ilves' comments.

'Eastern Europeans could be insulted because "their English is bad, won't respond & actually do what they've agreed to & reelect govts that are responsible.”' - hmm. Still not much of a counterargument. As a commentator above says, this displays an inferiority complex - it is Ilves making an issue about being "East European" - at no point does Krugman focus on this.

""But yes, what do we know? We're just dumb & silly East Europeans. Unenlightened. Someday we too will understand. Nostra culpa,“" - as above. Still no counter-argument.

It's one thing for a private citizen to respond so angrily and to use profanity - "Let's sh*t on East Europeans" - but frankly I think for a head of state to issue such an outburst reflects far worse on him than it does on Krugman.
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I think Krugman manages to be wrong 3 times over in his graph. Indirectly he claims the 2007/2008 GDP figures were something positive, when the truth is these GDP figures were the result of an unhealthy bubble. Then he says Estonia had a "depression" in 2009, probably wanting his American readers to think of USA in the 30s. But the fall in GDP in 2009 was a healthy correction to the bubble. And after 2009 Estonia has indeed had an impressive recovery (although not compared to the bubble economy of 2007).

It was the bubble in 2007/2008 that was bad! If you dont start the analysis with that fact all other follow up conclusions become irrelevant.
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~Dag
[07.06.2012, 17:52]

True it was a (private debt) bubble that is compared here with, but here's another thing about the "impressive recovery".

An impressive growth we only had between Q4/2010 and Q3/2011, since then things are (almost) flat again, so it would be quite interesting to look further into this time period what caused this growth and why this is not the case anymore (for now).

If I remember things right, the growth for Q4/2010 was due to pre-price increases on commdities short prior EURO accession (as price increases were forbidden short after accession), and for 2011, if I remember correctly, we had an increase share of exports and further inflation (on commodities again) twice the eurozone average.

So the question here is how sustainable the "impressive" recovery actually is.

The inflation on commodities also explains the partly the current stagnation, as consumers can not compensate ever incresing inflation forever, unless their wages go up at the same level in nearby times (and the income ratio has been recently negative relative to inflation levels).

The other thing certainly takes part on it are the turmoil in the global economy that does not much allow for a grow in exports and some of the EU aid that was freezed last year, due to questionable accounting discrepancies of these assets (and the effects now may kick in with some delay).

Any additional ideas? Amendments?

~knut albers
[07.06.2012, 18:24]

Dag,

- Both the bubble and the decline are bad. Starting from 2005 to 2011 Estonia's GDP has grown only 8% which is very low for an emerging economy. By contrast both Poland's and Slovakia's (countries that have a similar level op development) GDP has grown by 30% since 2005.
- The crisis in the USA in the 1930's was also caused by an unhealthy asset price bubble in late 1920's. So actually the two phenomena are quite similar.

~Mark
[07.06.2012, 18:53]

One thing I would like to add is the fact that the growth is still below prior the bubble that emerged from 2004-2007, check here:

President of the country having a panic attack over an opinion of one individual economist. Have some dignity please. Krugman is right by the way.
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~how pathetic
[07.06.2012, 17:56]

Dag is right. His post is the best I've seen on this topic across several papers.

~Go Dag
[07.06.2012, 18:51]

Yes, Dag gives a reasoned counterargument to Krugman that is at least worth consideration.

Shame that an anonymous internet commentator gives a better, more calm and reasonable response than the President of the country.

~Dag > Ilves
[07.06.2012, 19:26]

Yeah, Ilves should show some more dignity like Obama did last night by making an oral sex joke about his own wife.

~Dignified
[07.06.2012, 20:52]

Haven't heard about the Obama story but I assume he wasn't engaged in a debate with some one and trying to win the argument.

Ilves however was responding to an economist/journalist's statements coupled with graphical (if slightly edited) evidence. Do you really believe responding with ad hominen attacks with comments like "yeah, yeah we're all just dumb East Europeans" is an effective counterargument? Really? I'd say if anything it makes Krugman look like a calm reasoned person and Ilves like an angry "East European".

~yeah but whatabout...
[07.06.2012, 21:19]

Ilves was NOT debating. He was responding. There's a huge difference. BTW, I don't agree with how he did it and also think he should have kept his cool instead of letting emotion get the better of him.

~Ice Baby
[07.06.2012, 21:39]

It appears at most, Obama used a double entendre and it wasn't quite a dirty joke:
http://blog.seattlepi.com/seattlepolitics/2012/06/07/did-obama-make-a-joke-about-oral-sex/

~ameeriklane
[07.06.2012, 23:16]

American forums are as alive as Estonian ones regarding their respective president's flubs. What he said was certainly not becoming of a president, especially not from the world's most powerful country. The fact that it can so easily be understood in a dirty is proof that it was a mistake to say it.

~@ameeriklane
[08.06.2012, 14:17]

I disagree. What he said was open to interpretation and unfortunately for him the audience he was addressing chose to interpret it a certain way - and even then it's not cut and dried whether it was an intentional innuendo. I would say, he or his speechwriters could have used a better turn of phrase. There is enough scope there to give him the benefit of the doubt. But come on, to compare it with a President going off with, "Hey, let's sh*t on East Europeans"? I'd be embarrassed if my dad came out with such a tirade on a public forum, never mind the president of my country!

~S**t my dad says
[08.06.2012, 14:52]

And you wouldn't be embarrassed if your dad made a public comment that could and immediately be understood as referring to your mum performing oral sex on him? You must be one of those rabid Obama supporters. Bush would never have got away with that.

~?
[08.06.2012, 16:56]

No, I wouldn't be embarrassed, because I accept that life is full of faux pas, gaffes, uninentional innuendos, etc. That's a world away from the bitter bile Ilves was coming out with which, aside from being cheered by those who already dislike Krugman, makes him look like just another angry East European. Oh and nice argumentation by the way, if someone has a different view he must be in thrall to Obama. Are you the famous Estonian Propaganda Guy?

~angry East Europeans
[08.06.2012, 23:12]

You said it: 'I accept that life is full of faux pas, gaffes, uninentional innuendos, etc.' - This was just Ilves' turn to make a mistake by letting his emotions get the better of him. It happens to all leaders: Obama, Putin, Sarkozy etc because no one in the end is perfect and they sometimes let their guard down with negative results. Life moves on.

~Angry Russian, French, American Leaders
[09.06.2012, 11:09]

Maybe, and I would accept that if Ilves had just come out with one angry tweet, then reflected and stopped. But no, he continued, one message after another after another. Finally, instead of closing with a comment that, "OK, folks, perhaps I could have phrased myself better," he comes out with a smug, "Chill, y'all don't have to agree with me," etc, quite a juvenile pleased-with-himself response to all the baying voices of support (which sounds good until you consider that most of the comments of support seem to come from people who dislike Krugman ANYWAY). After the first or second one, was he not capable of thinking, "Hold on, maybe I'm letting my anger get out of control here Maybe I need to rein it in a bit." Especially given his station in life, as the figurehead of a country?

Listen I'm not arguing that Krugman is 100% right, what I find objectionable is the coarse language that is unbecoming to a statesman - and yes you can argue till the cows come home but the Obama issue is still open to interpretation in a way Ilves' comments are NOT (incidentally, how many other ways can you find to describe doing a pushup to maximum effect? I can't think of many.) Also, throwing in all this stuff about "oh it must be because we're dumb old East Europeans" CAN be interpretated, as somebody mentioned above, as showing an inferiority complex. Why bring all that baggage into it?

Finally, one interesting thing from reading many of the comments on the various sites about this story: for many people it's the first time they seem to have heard of Estonia, let alone Ilves. While I accept that all the other leaders you mention may have made gaffes, they are somewhat "shielded" by the fact that they are already known and impressions have already been formed about them. But Ilves, as leader of a small, relatively unknown country, doesn't have that luxury and has to meet a higher standard, because any impression he gives could be the first one. For many many readers around the world, the first time they have now heard of Estonia is because the President comes out with "Let's shit on East Europeans, their English is bad and they're backward etc etc". Is that the right first impression to set? I'm not saying it's fair,but unfortunately this is the way the world works. Lesser known countries have to be a lot more wary about the impression they give off. Why are Poland and especially Ukraine getting so exercised about allegations about football racism in a way that Germany didn't when it hosted the Euros and the same issues were brought up? Because they know that any impression to the world they give is crucial for them in a way it wasn't as crucial for Germany?

By the way, this is not a pro-Estonia/against-Estonia issue. As you no doubt know, there are a few voices in the Estonian political spectrum itself who have criticised the tone and phraseology the president chose, arguing that it hurts his international credibility. So it's hardly like he has unanimous support in Estonia itself.

The story (from Huffington Post) just went up on Fark.com 600 clicks in 15 minutes:
http://www.fark.com/comments/7149387/Nobel-Prize-winning-economist-makes-fun-of-Estonia-Estonian-president-throws-a-tantrum-on-Twitter
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~ameeriklane
[07.06.2012, 18:46]

I remember how Gorbachev predicted this would happen. He said in 1991 that balts were unable to govern themselves politically and economically. Yeltsin was the one only dumb enough to believe that situation at the Baltics would get easier after USSR would dissolve. Not only is Ilves behaving like a grown infant child but he is also very incompetent leader.

~orlv mask pul kamp
[07.06.2012, 21:37]

And how has Gorbie's 'prediction' come true, especially regarding Estonia?

~@orlv mask pul kamp
[07.06.2012, 22:15]

If you look at the numbers. I doubt there were many drug related deaths in Estonia during the Moscow olympics, now where there. Unemployment was almost non-existence. That is because Russia managed to kept order. USSR did not also demand estonians to contribute heavily to the Afghanistan war effort like NATO does today.

~hsitory
[07.06.2012, 22:41]

The NATO war effort from Estonia's behalf for Afghanistan mission is purely volunteer. The people who went, went by choice... not force.
Of course, its logical, because the pay is a lot better than here in Estonia on your own.
As for unemployment - everybody has a job in workers paradise. Even if the stats do exist (which I doubt they do), I am certain they are not as accurate as one would think.

Its the same as today - unemployment is sky high, but REAL unemployment is even higher

Shows how much you don't know. The afghan campaign led to a big heroin problem in the USSR, quite a number of Estonians served during the nine-year campaign and the unemployment thing is totally laughable. Did you actually sleep through all of your history lessons? The unemployed were either sent to the gulags, prisons, expelled from cities into the countryside or given inane jobs such as toilet administrator.
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~Gulag
[07.06.2012, 23:17]

The unemployment rate comparison with that one of USSR times is laughable indeed and if one speaks seriously about that, then it should be noted that the majority of jobs were state job creation schemes that is best described as communist zombie jobs a la carte (somewhat between permanent cigarette brakes and hibernation).

~Knut albers
[07.06.2012, 23:51]

Right. And state employs know one in Norway. LOL.

~oh yeah
[09.06.2012, 20:52]

Like I said. State employs a lot of people in Nordic countries Baltic clowns adore. In Sweden and Finland the number is almost half. Gulags? What Gulags were there in the 80s. I bet Tallinn prison was much more fun please when russians ran it than it is today. I do not support soviet policy of jailing certain individuals for stupid reasons but truth is still the truth.

~correction
[09.06.2012, 20:55]

Where on earth did you get that 'almost half' estimate? That the tax rate is nearly 50% does not mean 50% of the workers work for the state. Large part of that is just income transfers.

I think it makes sense to think that same persons who pay the taxes also receive the money, just in different stages of life. It's all privately spend. State does not decide how 50% of income in nordic welfare states is spend.

~wot?
[11.06.2012, 23:08]

The gulags were replaced with corrective labor colonies in the 1960s, which were the same things with less harsh conditions (Stalin was dead by then after all). For your further information, they still exist in Russia today.

If you think prison was better here in the Soviet times, feel free to post information to back up your ideas.

Come on people, it seems that the thread can move from Krugman to Obama bashing very quickly. Obama would never have sexualized his comments before any crowd, period. Like I said in the other Krugman piece (see Paul Krugman questions Estonia's economic miracle) on Friday, Obama is hip but a bit concrete. He was clearly referring to his wife's push up contest with the TV star wherein his reference to "going down all the way" is push up contest language for having a "push up count". He is criticized for being dependent on the teleprompter and his handlers would never have let him get off script to make a sexual joke before a Gay and Lesbian crowd. However, his comment is being picked up by all his adversaries and the World opinion and those who like to bash the Obamas, especially a now squirming Estonia after the Krugman piece. His accidental double entrendes can be seen in many frequent human utterances from each and every one of us. So much for Economics.
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Krugman needs to attack Estonia's success or else his entire philosophic platform collapses.
He is only interested in more governmental socialist programs - his entire reputation stands on that.
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